MGM Resorts International — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless noted. MGM operates domestic casino resorts and MGM China, and consolidates MGM Growth Properties (MGP).
Key financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net revenue | $2,826.7 | $2,515.1 | $8,176.7 | $6,994.3 |
| Operating income | $493.9 | $712.8 | $1,492.1 | $1,797.8 |
| Net income attributable to MGM | $149.1 | $535.6 | $566.6 | $1,076.8 |
| Diluted EPS | $0.26 | $0.93 | $0.97 | $1.88 |
| Adjusted EBITDA | $780.5 | $662.4 | $2,283.7 | $2,207.0 |
- Revenue increased 12% in Q3 and 17% year to date, driven mainly by the Borgata acquisition, the opening of MGM National Harbor, and growth at domestic resorts.
- Domestic resorts revenue was $2,235.2 million in Q3 and $6,392.5 million year to date. Domestic same-store Adjusted Property EBITDA grew 12% and 9%, respectively; same-store margins were 33.0% in Q3 and 32.1% year to date.
- MGM China revenue declined 6% in Q3 to $470.8 million and was nearly flat year to date at $1,421.9 million. Adjusted EBITDA was $118.2 million in Q3 and $377.5 million year to date; Q3 margin fell to 25.1% from 30.0%.
- Cash from operations was $1,511.9 million for the first nine months, versus $1,049.0 million. Capital expenditures were $1,399.3 million. Cash and cash equivalents were $1,986.7 million at September 30.
- Principal debt was approximately $13.6 billion; reported debt, net of discounts and issuance costs, was $13.5 billion. Current debt was $466.4 million, including MGM National Harbor borrowings subsequently repaid in October. The company estimated $713 million of cash interest payments over the next 12 months.
- Total current assets were $2,794.5 million and current liabilities were $2,735.8 million. The company reported compliance with its credit facility covenants at September 30.
- Dividends declared were $0.11 per share in Q3; the board approved another $0.11 quarterly dividend in November. MGM repurchased 10 million shares for $327.5 million under a new $1 billion authorization.
Material changes and unusual items
- Reported profit fell sharply against prior-year periods that included a $429.8 million Borgata acquisition gain in 2016 and, for the nine-month comparison, MGM’s $397 million share of the CityCenter Crystals sale gain. Q3 2016 also included $139.3 million of NV Energy exit expense; in 2017, a modification of those obligations produced a $40.6 million nine-month benefit.
- Q3 2017 included a $30 million loss on early retirement of 11.375% senior notes. The notes’ $475 million principal was redeemed in July.
- Income tax expense was $115.1 million in Q3 2017 versus a $45.0 million benefit in Q3 2016. The current quarter included a $38 million increase in the valuation allowance against foreign tax credit deferred tax assets; prior-year tax comparisons also reflected significant valuation-allowance changes.
- In October, MGP acquired the MGM National Harbor real property and leasehold interest, paying $463 million cash, assuming $425 million of debt and issuing 9.8 million Operating Partnership units. MGM’s annual rent obligations under the master lease increased by $95 million, prorated for the remaining lease year.
Outlook, risks and contingencies
- Typhoon Hato damaged and delayed MGM Cotai. MGM expected the resort to open January 29, 2018; its estimated project budget increased to $3.4 billion, excluding specified development fees, capitalized interest and land costs. MGM China was seeking an extension related to the January 8, 2018 occupation-permit deadline and was pursuing a higher 2018 leverage covenant. Failure to obtain relief or the land concession could have material consequences.
- MGM Springfield, with estimated construction cost of approximately $960 million, was expected to be completed in Q3 2018. Planned Q4 2017 spending included about $255 million at Cotai, $105 million at Springfield and $235 million at domestic resorts and corporate entities, excluding Springfield.
- Following the October 1, 2017 Las Vegas shooting, MGM reported cancellations and weaker forward non-group reservations, with pricing pressure. Management expected Las Vegas Strip revenue in Q4 2017 to decline versus the prior-year quarter.
- October 1-related lawsuits alleged negligence and seek damages, including for injury and wrongful death. The company said liability was reasonably possible but that it could not estimate a loss range; it believed losses beyond insurance coverage were unlikely.
- Key exposures include substantial debt and fixed lease commitments, interest-rate and foreign-exchange movements, Macau gaming and concession risks, construction and opening delays, reliance on gaming promoters, regulatory changes, and the ability to realize foreign tax credit assets. A 100-basis-point rate increase was estimated to raise annual interest cost by $19 million for LIBOR exposure and $23 million for HIBOR exposure.
- Management stated disclosure controls were effective at quarter-end and reported no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether MGM Cotai opened on schedule, obtained required permits, stayed within its revised budget and secured the needed MGM China covenant amendment.
- How the October 1 incident affected Q4 and subsequent Las Vegas bookings, room rates and operating results, and how litigation and insurance claims developed.
- Whether cash generation can fund planned development spending, debt service and lease obligations while supporting dividends and buybacks.
- Underlying domestic and MGM China performance apart from acquisition effects, gaming hold volatility, prior-period gains and tax valuation-allowance changes.
- The post-October MGM National Harbor transaction’s effect on consolidated debt, lease costs, MGP ownership and cash flows.